Affinity Fraud :: Stock Broker Fraud Blog

U.S. Securities and Exchange Commission has filed a securities fraud lawsuit against investment firm GTF Enterprises Inc., money manager Gedrey Thompson, and associates Sezzie Goodluck and Dean Lewis. The SEC claims that GTF and Thompson targeted investors from the African-American and Caribbean communities in Brooklyn, NY. The affinity fraud scam bilked at least 20 investors of over $800,000 between 2004 and 2009.

The SEC claims that Thompson convinced clients to invest the money in GTF in exchange for lucrative investment returns with guaranteed safety of principals and other promises. He then went on to invest a “fraction” of the clients’ funds (losing thousands of dollars in the process), while using hundreds of thousands of their dollars to pay for his own expenses. The affinity fraud scheme cost some investors their life savings.

Among the multiple misrepresentations that the SEC says Thompson made to investors was the claim to one client that her investment was “150% guaranteed.” He allegedly told another investor that he could make him a millionaire. Thompson and GTF allegedly covered up the securities fraud by generating bogus quarterly account statements for clients. Goodluck and Lewis are accused of helping Thompson with his investment scheme.

“Our firm has handled many affinity fraud cases and has recently seen a substantial increase in such claims, remarked Stockbroker Fraud Attorney William Shepherd. “Affinity fraud occurs when dishonest people target victims who trust them because of a common language, race, religion, background or even occupation. It is reprehensible when stockbrokers, financial advisors and others take advantage of this common bond. Fortunately, most judges, juries and arbitrators who decide these cases agree. However, some affinity fraud victims are hesitant to take legal action to recover their losses. Others properly feel it is their duty to ‘clean up' their own neighborhood.”

Related Web Resources:
SEC Says New York Investment Firm GTF Defrauded Investors, Wall Street Journal, May 28, 2010

Read the SEC Complaint (PDF)

Posted by Shepherd Smith Edwards & Kantas | Permalink | Email This Post

Posted In: Affinity Fraud , SEC Enforcement

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Affinity fraud involves investment schemes that target specific groups, such as the elderly, those belonging to identifiable ethnic or religious communities or members of professional groups. Fraudsters seek to gain the trust of members of the group by either belonging to the group or pretending they belong. One tactic is to seek to fool group leaders into thinking the investments are legitimate so that they will assist in promoting the fraud. This is often accomplished by generating false profits for formal or informal leaders of the group at the beginning.

Pyramid schemes and ponzi scams are often employed to commit affinity fraud. In these schemes funds from new investors are used to falsify profits to current investors. This lulls them into believing their investments are turning a profit. as new investors are deceived into believing their investments will also soon grow in value. Inevitably, when there are no more new investors to sign up, the scheme falls apart and investors usually later learn the fraudster has stolen their funds.

However, affinity fraud can often involve abusing trust to lure victims into simply investing into high-risk and/or high-commission investments to generate commissions and fees, or buying and selling ("churning") invesements to gain multiple comissions.

Affinity fraud is based on the special trust within a group and, because those targeted tend to be close-knit, victims are often slow to detect the fraud. Furthermore, affinity fraud victims are often persuaded by the fraudster to attempt to resolve the dispute quietly rather than seeking legal assistance, preferably someone who is a stockbroker fraud lawyer.

Our securities fraud law firm offers free confidential consultations to determine whether someone has been the victim of affinity fraud. It is essential that legal help be sought before trying to resolve affinaty fraud claims privately. Victims can often fall prey again to the fraudster by destroying their legal rights to recovery,

As well, contacting authorities without legal advise can actually harm the victims ability to recover their losses. For example, contacting the SEC Complaint Center or state securities regulators without proper proof, can cause the situation to worsen and remaining funds to disappear as a long arduous investigation is contemplated.

Unfortunately, many people are unaware that affinity fraud even exists. The desire to make money on the advice of a “trusted” community member can be too hard to resist. Unfortunately, this can result in huge financial losses for those involved.

The US Securities and Exchange Commission offers good guidance as to avoid affinity fraud:

• Even if you trust the person touting the investment opportunity, it is a good idea to do your own due diligence. The person bringing you the deal may not even realize that an investment scam is involved.

• Be wary of investments that promise guaranteed returns or amazing profits. Remember that there are always risks involved when you invest.

• Make sure that any investments that you buy into are documented in writing. Consider it a possible red flag if you are told to keep the opportunity to yourself.

• Don’t feel pressured into investing. Question all “once-in-a-lifetime” investments.

• Be careful of investment opportunities sent to you by strangers via the Internet.

Stock Broker Fraud Blog

Published by Houston Securities Fraud Lawyers Shepherd Smith Edwards & Kantas

Alleged $800 Affinity Fraud Scheme Prompts SEC to Sue GTF Enterprises and Its Money Manager

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